Currently, the majority of U.S. states have legalized cannabis on some level. While the drug is currently a Schedule I substance under the Controlled Substances Act, the state loosening of laws continues and federal legalization grows nearer. Meanwhile, as the legal landscape evolves, so too does the establishment of cannabis-related businesses that require insurance coverage, each with its own evolving set of needs.

If you are thinking about entering the emerging market, here are four things you should know first:

1) Know your niche. While this insurance market may be new for many independent agents, understanding everything from the terminology that is used to the carriers that offer coverage is essential.

“If you want in, get to know the space as well as you can. That means learning the terminology, the classes of business and how they operate," says Kieran O'Rourke, underwriting manager, Cannasure. “Study the laws and regulations in the state or states you intend to do business in."

Cannabis operations require a range of insurance coverage, including property and liability coverage. “Take your time and ask lots of questions as the diversity in the way cannabis businesses operate is only exceeded by the creativity with which they name their products," says Norman Ives, broker, cannabis practice leader at Amwins. “While most cannabis businesses have common security protections—alarms, safes, cameras—they will also have uniquely different operations and approaches to their business."

Additionally, when it comes to the product itself “different forms of solvent-based extraction and types of lighting and drying processes will all vary from one license holder to the next and will play a dynamic role in evaluating the risk profile of an insured," Ives says. “Helping the insured accurately represent their operations on a supplemental application is critical to placing effective and relevant coverage for the insured."

2) Understand new cannabis products. “Cannabis businesses remain entrepreneurial and are constantly looking for new products that give them an edge in the marketplace," says Emily McDaniel, broker, commercial insurance, Burns & Wilcox.

“We are starting to see carriers providing coverage options to dispensaries that allow onsite consumption of cannabis products," Ives says. “These consumption spaces are typically licensed inside of an operating dispensary or in a nearby adjacent space and allow consumers a safe legal space to consume their recently purchased products. Select carriers are now providing options to extend liability coverage for these consumption spaces that were previously not available in the insurance market." 

Keeping abreast of the continuous changes will ensure agents understand the intricacies of the burgeoning market and its products. However, “until federal legalization comes to fruition, the number of consumer options probably won't change significantly," says Jim McErlean, business development manager, Cannasure. “We project significant consumer market growth as existing states pass enhancements to their cannabis laws for consumer safety, while new states pass laws that welcome cannabis into their states."

3) Develop partnerships. Creating relationships with carriers will give an agent aiming to specialize in the cannabis market space to grow. “The more accounts they work together on and the more committed each party is to the relationship, the more successful they will be," McDaniel says. “Almost everyone is serving the same markets, so it truly comes down to expertise and relationships."

But first, “find out all you can about the carriers and the programs in the market and get very familiar with their applications, their submission requirements and appointment process," McErlean says. 

However, agents should still “sharpen their risk management knowledge because the insurance offerings do not cover everything like in the standard market and your clients will need to fill those gaps, many times with good old-fashioned risk management techniques," O'Rourke says.

4) Be aware of legislation. Earlier this month, federal cannabis legalization was passed in the U.S. House of Representative by a 220-204 vote. Federal legalization will open the market to more companies but, for now, finding adequate insurance coverage for cannabis-related businesses is difficult. Because of the legal challenges, many carriers, agents and brokers do not advertise the services they offer to such businesses. 

Recent legislation includes the Secure and Fair Enforcement (SAFE) Banking Act, which aims to reconcile federal law with conflicting cannabis-related state laws by providing a federal safe harbor to financial services providers, including insurers, agents and brokers; or the Clarifying Law Around Insurance of Marijuana Act (CLAIM Act), providing a safe harbor from penalties or other adverse agency action for insurance companies that provide services to cannabis-related legitimate businesses in jurisdictions where such activity is legal. 

The cannabis industry is evolving and “over the next two to three years we should see an acceleration of cannabis operations in the northeast of the country as both New York and New Jersey organize the regulations and licensing around adult-use cannabis," Ives says.

“The passage of either the SAFE Act or the CLAIM Act could open the doors for new carriers to enter the marketplace, albeit carefully and measuredly," McErlean says. “Federal legalization is the expected game-changer."

Olivia Overman is IA content editor.